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Oil begins 2019 with renewed slide amid fears over China growth

Jan 02 2019 16:43

Grant Smith, Bloomberg

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Oil started 2019 with another price slide as weaker Chinese
manufacturing data pointed to slowing demand in the world’s
second-biggest consumer of the fuel and to growing risks of a global
crude surplus.

Futures declined 1.6% in New York after a turbulent 2018 that
saw
volatility soar in its final weeks as concerns over the US-China trade
dispute and an uncertain economic outlook roiled stock markets. Though
both New York and London crude benchmarks rallied in the last days of
2018, they each lost 20% or more during the year on expectations
that booming US shale output could unleash a new glut.

"The omens are far from encouraging," said
Stephen Brennock, an analyst at PVM Oil Associates in London. "Global oil inventories will build in the coming months. This is hardly a
recipe for a sustained price recovery."

West Texas Intermediate for February slipped 72 cents to $44.69 a
barrel on the New York Mercantile Exchange at 8:52 a.m. local time. The
contract rose as high as $46 earlier in the session. Prices slid 25% to $45.41 in 2018. Total volume traded on Wednesday was about 13% above the
100-day average.

Brent for March settlement fell 70c to $53.10 a barrel on the
London-based ICE Futures Europe exchange, and traded at an $8.13
premium to WTI for the same month. The global benchmark crude declined
20% to $53.80 in 2018.

Although the Organisation of Petroleum Exporting Countries and its
allies have pledged substantial output curbs to prevent an oil surplus
from forming this year, investors remain concerned that the cutbacks
won’t be deep enough to make way for yet another supply surge from Texas
and other states driving the US shale revolution.

Warning lights in the global economy are only compounding expectations that there will be more oil supply than needed this year.

While President
Donald Trump made positive noises about reaching a trade deal with his
Chinese counterpart Xi Jinping over the weekend, the Chinese data - and
similar readings from across Asia - are a stark example that the
protectionist showdown is starting to have an impact on economic
activity.

"Sluggish economic data we see from China is again worrying investors ,"
Ahn Yea Ha, a commodities analyst at Kiwoom Securities, said by phone from Seoul.

Trump
tweeted on Tuesday that gasoline prices are low and are expected to fall
this year, likening the drop to a tax cut. He also signaled he wants to "make a deal" to break a stalemate that’s had part of the US government
shut for 11 days.